Taxation

What Is GST

GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.

In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has replaced many indirect tax laws that previously existed in India.

GST is one indirect tax for the entire country.

So, before Goods and Service Tax, the pattern of tax levy was as follows:

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. Inter-state sales are chargeable to Integrated GST.

Now let us try to understand the definition of Goods and Service Tax – “GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.”

Multi-stage

There are multiple change-of-hands an item goes through along its supply chain: from manufacture to final sale to the consumer.

Let us consider the following case:

Purchase of raw materials

Production or manufacture

Warehousing of finished goods

Sale to wholesaler

Sale of the product to the retailer

Sale to the end consumer

Value Addition

Services Tax is levied on each of these stages which makes it a multi-stage tax.

The manufacturer who makes biscuits buys flour, sugar and other material. The value of the inputs increases when the sugar and flour are mixed and baked into biscuits.

The manufacturer then sells the biscuits to the warehousing agent who packs large quantities of biscuits and labels it. That is another addition of value after which the warehouse sells it to the retailer.

The retailer packages the biscuits in smaller quantities and invests in the marketing of the biscuits thus increasing its value.

GST is levied on these value additions i.e. the monetary value added at each stage to achieve the final sale to the end customer.

Destination-Based

Consider goods manufactured in Maharashtra and are sold to the final consumer in Karnataka. Since Goods & Service Tax is levied at the point of consumption. So, the entire tax revenue will go to Karnataka and not Maharashtra.

What is Income Tax

Income Tax refers to the tax you pay directly to the government depending on your income or profit (for companies/local authorities). The money collected by this direct tax route is used by the Government for infrastructural developments and, also, to pay the employees of central and state government bodies.

Taxes levied by the Government are of two types- Direct taxes and Indirect taxes. Indirect taxes are those that are levied on services and goods. Direct taxes, on the other hand, are levied on profits and income. For example, service tax is what you pay in a restaurant and is an indirect tax, whereas Income Tax that is deducted from your salary every month in the form of TDS, is an example of direct tax.

Income Tax Act of India, passed in 1961, governs the provisions for income tax as well as the various deductions that are applicable to it. However, since 1961, the law has been amended several times to take care of inflation and other socio-economic situations.

Income Tax Overview

Income Tax is undoubtedly the most important source of revenue for the Indian government. It is established as an inevitable imposition on the citizens in order to raise funds for fulfilling the development & defence needs of the country.

Taxes imposed on income, purchase, sale, and property help the government to run different government embodiment and machinery.

In India, the first Income Tax Act was introduced in 1860. It was implied by James Wilson to overcome heavy losses suffered by the British Government due to India’s freedom movement in 1857. The history of Income Tax in India is divided into 3 different periods:

1860-1885

1886-1914

1914 till date

Currently, the Income Tax Act 1961 is applicable in India. In 1956, the government referred the request to impose Income Tax Act. The Law Commission further submitted its report on the Income tax Act in 1958 and the same year, Chairman Shri Mahavir Tyagi, chaired the Direct Taxes Administration inquiry Commission.

The Income Tax Act, 1961 was introduced to the public. Since then, it has undergone amendments from time to time.

Types of Taxes in India

As per the Income Tax Act, there are 2 types of taxes in India:

Direct Taxes

It is borne and paid directly by the individual on whom it is imposed such as, wealth tax, income tax, gift tax, etc. The taxpayer pays this tax directly to the government without any involvement of intermediary source.

Indirect Taxes

If a tax is passed on by the taxpayer to the other person, it is an indirect tax e.g. sales tax, Value Added Tax (VAT) etc. This type of tax is paid indirectly to the Income tax department.

Who are the Tax Payers?

Any Indian citizen aged below 60 years is liable to pay income tax, if their income exceeds Rs 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs 2.5 lakhs, he/she will have to pay taxes to the Government of India. Additionally, the following entities that generate income are liable to pay direct taxes:

Hindu Undivided Family (HUF)

Body Of Individuals (BOI)

Association of Persons (AOP)

Local Authorities

Corporate firms

Companies

All Artificial Juridical Persons

What are the Different Income Tax Slab Rates?

Income tax slab rates are defined on the basis of the earning of the taxpayers. Income tax slab rates are broadly categorized as follows:

For HUFs and Individuals (Male or Female) Below the Age of 60 Years Income Tax Slabs & Rates 2017-18

Income Tax Slabs

Income Tax Rates

Income less than Rs 2.5 lakhs

Not applicable

Income greater than Rs 2.5 lakhs but less than Rs 5 lakhs

5% of the amount exceeding Rs 2.5 lakhs

Income greater than Rs 5 lakhs but less than Rs 10 lakhs

20% of the amount exceeding Rs 5 lakhs

Income greater than Rs 10 lakhs

30% of the amount exceeding Rs 10 lakhs

For Individuals (Male or Female) Above the Age of 60 Years:

Income Tax Slabs

Income Tax Rates

Taxable income less than Rs 3 lakhs

Not Applicable

Taxable income greater than Rs 3 lakhs but less than Rs 5 lakhs

5% of the amount exceeding Rs 3 lakhs

Taxable income greater than Rs 5 lakhs but less than Rs 10 lakhs

20% of the amount exceeding Rs 5 lakhs

Taxable income greater than Rs 10 lakhs

30% of the amount exceeding Rs 10 lakhs

For Individuals (Male or Female) Above the Age of 80 Years:

Income Tax Slabs

Income Tax Rates

Taxable income less than Rs 5 lakhs

Not Applicable

Taxable income greater than Rs 5 lakhs but less than Rs 10 lakhs

20% of the amount exceeding Rs 5 lakhs

Taxable income greater than Rs 10 lakhs

30% of the amount exceeding Rs 10 lakhs

For Co-operative Societies:

Income Tax Slabs

Income Tax Rates

Taxable income less than Rs. 10,000

10% of the income

Taxable income greater than Rs. 10,000 but less than Rs. 20,000

20% of the amount exceeding Rs. 10,000.

Taxable income greater than Rs. 20,000

30% of the amount exceeding Rs. 20,000.

For Domestic Companies:

The income tax rate applicable for Domestic Companies will be @ 30%.

For Foreign Companies:

Nature of Income

Rate of Tax

According to the agreement designed by Indian Government, if the foreign firms are paid by the Indian Government in the form of royalties (After March 31st ,1961 and before April 1st, 1976)

50%

According to the agreement made with an Indian concern, if the payment is done for the technical services (provided by foreign firms – After February 29th 1964, before April 1st 1976)

50%

For any other income

40%

For Local Authorities:

For local authorities, the tax rate is determined as at 30%.

**Income Tax Slab Rates for the assessment year 2018-19**

How is the Income Tax Collected?

There are primarily three ways in which the Income Taxes are collected by the Government:

Taxes Deducted at Source (TDS)

Taxes Collected at Source (TCS)

Voluntary payment by tax payers into designated Banks

What are the different taxable Heads of Income?

Income taxes are levied depending on the source of Income. Following are the five main income heads from which taxes are deducted.

Income From Salaries

Taxable income that all employees receive from their employers is categorized under this head. As per section 192 of the Income Tax Act, the employer will withhold taxes if the employees do not come within the taxable bracket. All about tax deductions and the net paid income are detailed in Form 16 that must be provided by the employer to the employee.

Income From Capital Gains

Capital gains taxation applies to earnings from the sale of capital assets held by the tax assessee. Capital assets refer to the properties such as buildings, lands, bonds, equities, debentures, jewelleries, etc. Taxes are levied on the income of the assessee when such properties are sold.

Income From House Property

Income Tax is levied on house property, if the house is given out on rent by the owner. However, under this head, the property cannot be used for business or professional purposes.

Income (Profits) From Business

As per section 30 to 43D of the Income Tax Act, the profits earned from businesses or by providing professional services are considered taxable as per applicable rates. This income head is also known as “Profits and Gains of Business or Profession”.

Income From Other Sources

Income from any sources other than the four listed above is categorized under this head. Some specific income coming under this head is listed below:

Lottery/horse race winnings

Income from dividends

Pension received after the pensioner’s death.

Rental income (other than house properties)

Gifts received

Interest on government securities, debentures, and bonds.

What are Income Tax Returns?

Every individual, who has a source of income, regular or irregular, is legally required to file their income tax returns. Even if your income is below the taxable bracket, you should file your income tax returns. There are prescribed forms through which the income earned by a person and the income tax paid thereon are informed to the Income Tax Authority. The following table shows different forms prescribed for different classes of taxpayers.

ITR Form 1

Any person who receives regular salary or pension or has an income from residential property or other sources.

ITR Form 2

This form is for those who are come under the category of Hindu Undivided Families and have income from any sources other than Profits gained from business and profession.

ITR Form 3

This form is for the Hindu Undivided Families whose income fall under the head of Profits and Gains of Business or Profession.

ITR Form 4S

This form, also known as SUGAM, is applicable to HUFs(Hindu Undivided Families) and individuals opting for SUGAM taxation scheme as per section 44 AD/ AE

ITR Form 4

This form is applicable to Hindu Undivided Families and individuals who are professionals or proprietors

ITR Form 5

This form is applicable for LLPs, Firms, BOIs, AOPs, artificial judiciary persons and local authorities.

ITR Form 6

This form is applicable to companies that claim no exemptions as per section 11 of the Income tax Act.

ITR Form 7

This form is applicable to the persons who are required to file returns as per Sections 139(4A), 139 (4D), 139 (4C), 139(4B)

ITR Form V

ITR V is provided to acknowledge that the Income Tax return has been filed.